Councils propose ethics rule for contractors

Rule would require contract employees to conform to federal ethics standards

Regulators looking to fill potholes in the Federal Acquisition Regulation have proposed a new ethics rule for government contractors. Although  lawmakers have focused mainly on agencies’ procurement ethics, the Civilian Agency Acquisition and Defense Acquisition Regulations councils want to set ethics guidelines for companies working on federal contracts worth more than
$5 million.

The FAR tells agencies how to avoid improper business practices and personal conflicts of interest issues, but it is silent about how contractors should behave. The proposed rule change would make companies responsible for avoiding improper business practices.  The proposed rule would require  contractors to publish a code of ethics and rules of conduct, and it would establish a governmentwide standard for contractor ethics instead of allowing each agency to set its own ethics standards for contractors.

Rep. Tom Davis (R-Va.), ranking member on the House Oversight and Government Reform Committee, regards the proposed rule as a common-sense approach to contractor ethics, a senior committee staff member said.

“It makes sense to have clear governmentwide ethics policy outlines and then have each contractor…implement its own program within those parameters,” said David Marin, the committee’s Republican staff director.

Marin said the rule dovetails with strengthened contractor whistleblower legislation, which the committee approved in February.

Some contracting experts support the rule, saying it simply makes sense. Marcia Madsen, who led the Services Acquisition Reform Act panel, said the proposal is similar to the panel’s recommendation that federal contracts include a standard clause that would establish the contractor’s responsibility for ethical conduct.

Madsen said the proposed rule is a modest change, which she termed good ethical hygiene. The regulation would place more responsibility on agencies to check for compliance, she added. “A good buyer would be checking to see if [contractors] are doing these things.”

Other contracting experts say the proposed FAR rule would cause few  changes in conduct by agencies or contractors. Most companies already have such codes of ethics and conduct, said Stan Soloway, president of the Professional Services Council, which represents companies that provide services to the federal government. And many agencies already include a code of contractor ethics in contracts they award, he added.

Under the proposed rule, contractors receiving awards of more than $5 million with at least a 120-day performance period must publish a written code of ethics and rules for proper business conduct within 30 days of receiving a federal contract. Those companies would be required to offer an ethics and compliance training program for employees and have internal procedures for discovering and stopping unethical conduct. The scope of the training program would be relative to the company’s size and extent of its government business, the rule states.

The new ethics requirements would apply to prime contractors and subcontractors, the notice states.

The rule proposes to change the status quo. “In view of the significant sums of federal dollars spent by agencies to acquire goods and services, this rule establishes a clear and consistent policy” on what the government expects from contractors, a Federal Register notice of the proposed rule states.
Federal ethics rule would focus on contractor misconductA proposed Federal Acquisition Regulation rule would require contractors that receive awards greater than $5 million with performance periods of at least 120 days to have a written code of ethics and guidelines for proper business conduct within 30 days after the contract award.

The rule would also require federal contractors to:

  • Conduct an ethics training program for employees within 90 days after the contract award.
  • Display the agency’s Office of Inspector General fraud hotline poster at work locations in the United States and on the company’s Web site.

Comments on the proposed rule are due April 17.


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